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The Competition and Markets Authority (CMA) also fined distributor Flynn Pharma £5.2m for the 2,600% overnight price increase for the drug in 2012.
NHS spending on the capsules, used by 48,000 UK patients, rose from £2m a year in 2012 to about £50m in 2013.
Pfizer rejected the findings and said it would appeal against the decision.
UK prices for the drug were many times higher than in Europe, the CMA said.
Philip Marsden of the CMA said: "The companies deliberately exploited the opportunity offered by de-branding to hike up the price for a drug which is relied upon by many thousands of patients.
"These extraordinary price rises have cost the NHS and the taxpayer tens of millions of pounds."
Before 2012, Pfizer manufactured and distributed the drug, which was branded Epanutin.
Pfizer then sold the UK rights to distribute the phenytoin sodium capsules to Flynn Pharma, which de-branded the drug.
That allowed the firms to charge more for the drug because it was no longer subject to a pricing scheme agreed between the NHS and the drugs industry, the CMA said.
However, Pfizer said the drug was a loss-making product, and that the deal with Flynn "represented an opportunity to secure ongoing supply of an important medicine for patients with epilepsy".
"Pfizer believes the CMA's findings are wrong in fact and law and will be appealing all aspects of the decision," it said.
The drugs giant said the increased price of the drug was still 25% to 40% below the cost of an equivalent medicine by another supplier to the NHS.
But the CMA said by its calculations "all such losses would have been recovered within two months of the price rises."
Flynn Pharma said the CMA was "making a serious error" and that it would appeal in a bid to overturn the CMA's findings.
"It beggars belief that the CMA seeks to punish Flynn for selling phenytoin capsules at a significant discount to phenytoin tablets," said David Fakes of Flynn Pharma.
The firms have between 30 days and four months to reduce the price to a level acceptable to the CMA, and two months to appeal against the CMA decision to the Competition Tribunal.
The fine will go to the Treasury rather than the NHS directly, although the health service could try to seek damages.
Drugs industry body the Association of the British Pharmaceutical Industry said it "does not in any way support or condone the practice of 'price hikes' to generic medicines".
"Whilst we can't comment on individual companies and an appeal being made, it's appropriate that the complexities of this case are considered through the ongoing legal process," the organisation said.
The government is seeking to tighten up regulation of generic drugs price rises.
The Health Service Medical Supplies (Costs) Bill passed its third reading in the House of Commons on Tuesday.
A Department of Health spokesperson said: "Yesterday, our bill to ensure we can control high prices of generic medicines passed through the House of Commons - we are absolutely determined to ensure that no pharmaceutical company can exploit the NHS.
"We very much welcome the fines issued today, which show that any such exploitation will not be tolerated."
Drugs giant Pfizer has been fined a record £84.2m by the UK's competition watchdog for overcharging the NHS for an anti-epilepsy drug.

Nigel Rhodes was fined for driving on Coppergate in York which, along with Lendal Bridge, is barred to general traffic at certain times of day.
But a tribunal found neither road was a bus lane, the signage was inadequate and CCTV evidence insufficient.
City of York Council said it would seek legal advice over the decision.
General traffic is banned from Coppergate between 07:00 and 19:00, and from Lendal Bridge between 10:30 and 17:00.
More than 57,000 drivers have been issued penalty notices since the restrictions were put in place in August as part of a trial which was due to end in February, but has been extended to May.
Mr Rhodes appealed against his £60 fine for "being in a bus lane" at 09:22 BST on 21 August last year.
Adjudicator Stephen Knapp of the independent Traffic Penalty Tribunal said as there were so many exemptions in place buses were "just one" type of vehicle allowed, and "the restriction was not on any reasonable view a bus street".
The Labour-run authority has faced criticism for the scheme, which Liberal Democrat councillor Ann Reid described as an "utter fiasco".
"The ruling supports our concerns that the closure signs were not clear," she said.
"It also confirms that often the only way for drivers to avoid the closure is to do a dangerous U-turn on a narrow road.
"Labour should reopen Lendal Bridge immediately and the cabinet member responsible for the mess should be considering his position."
Darren Richardson, the council's director of city and environment, said: "[We are] seeking independent legal advice.
"We will also be speaking to the Department for Transport, who approved signage used for both schemes.
"The restrictions will remain in place and we would urge drivers to continue to adhere to these."
A council which has raised £1.3m from drivers breaking a traffic ban has "no power" to issue penalties, an adjudicator has ruled.

The party's candidate, Paul Farrelly - its MP since 2001 - is keeping calm and carrying on in the face of an attack from his well-funded political opponents, the Conservatives.
But while Labour has been in retreat in the constituency in recent elections, this time he's finding it more difficult to get rescued from the prospect of defeat.
The seat is number eight on the Tory target list.
It was highly marginal in 2015 so reinforcements were offered and Paul Farrelly scraped home with a 650-vote majority.
This time he has seen no evidence that help will be on its way.
Yet it's much needed. Not expecting a snap election, his agent and secretary have holidays they can't cancel.
He told me: "We are being outgunned. I am hoping we have enough resources to continue the campaign.
"It's an uphill battle like never before. What we are used to in marginal seats is a mass mobilisation from safer seats - and hopeless seats, quite frankly, and that's not happening this time."
This is a seat Labour needs to defend if it is to have a realistic hope of winning the general election.
But then Paul Farrelly doesn't think his party will win that election. He is not campaigning on the national message here: "If I told anyone Jeremy Corbyn was going to be prime minister they would laugh me off the streets.
"The message is to rein in the landslide Theresa May wants. Don't give Theresa May a lapdog parliament."
This is how he puts it in his official campaign literature: "Please don't let May take us over in June."
And while he mentions Theresa May in his leaflets, he doesn't mention his own leader.
"We have limited space on election leaflets and there is no space for Jeremy."
He says he doesn't usually put leaders on leaflets but adds that "Jeremy does not go down well with our core Labour support".
He is fighting a relentlessly local campaign - opposing a potential hospital closure and arguing for better school funding -  rather than setting out what Labour would do in government.
And Paul Farrelly is not alone.
Although they are not queuing up to talk to the media, other Labour politicians have taken a similar approach.
I've obtained a script circulating amongst Corbyn-sceptic candidates which advises them to:
The Conservatives believe they have another useful line of attack in Newcastle under Lyme.
Voters here backed Leave in the EU referendum. Paul Farrelly refused to vote for triggering Article 50, which formally began the Brexit process.
The Conservatives' recently selected candidate, Owen Meredith, himself voted Remain in the referendum.
He told me: "Like the prime minister, I support the result of the referendum.
"Like the prime minister I think we can make a success of Brexit. And unlike the local Labour MP I would have voted to trigger Article 50."
And well he might take that line. Though he is also fighting on local issues - he got his first job in the town - he is well aware UKIP isn't fielding a candidate here.
The party got more than 7,000 votes at the last election and as Owen Meredith put it: "Those votes are up for grabs."
But Paul Farrelly's main opponent may be active apathy.
That could sound like a contradiction in terms but I understood it when I paid a visit to the George and Dragon pub in the town centre.
The landlord, the staff, the clientele - mostly postal workers and builders - were pro-Brexit.
But it was concerns about Labour's leader that were influencing their approach to the general election - most were former Labour supporters, and they had taken a decision to stay at home on polling day.

The Newcastle-under-Lyme Labour Party offices are located on a road called Dunkirk.

